Business Context and Reporting Period
Company: Apple REIT Nine, Inc. (Apple Hospitality REIT, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: April 14, 2009
Event: Completion of acquisition of two hotel properties in Austin, Texas, through indirect wholly-owned subsidiaries. This transaction marks the seventh closing under a series of purchase contracts executed on November 12, 2008.
Key Financial Metrics
Acquisition Details
| Property | Franchise | Rooms | Purchase Price | Assumed Debt | Interest Rate | Maturity |
|---|---|---|---|---|---|---|
| Austin, TX | Homewood Suites | 97 | $17,700,000 | $7,555,797 | 5.99% | March 2016 |
| Austin, TX | Hampton Inn | 124 | $18,000,000 | $7,553,015 | 5.95% | March 2016 |
| Total | - | 221 | $35,700,000 | $15,108,812 | - | - |
Funding Source: Ongoing offerings of Units (one common share and one Series A preferred share) and a short-term line of credit.
Historical Performance of Acquired Entities (Combined)
The filing includes audited financial statements for the entities owning the acquired hotels (Austin FRH, LTD, FRH Braker, LTD, and RR Hotel Investment, LTD) for the years ended December 28, 2008, and December 30, 2007.
- Revenue (2008): $11,050,226 (vs. $10,291,766 in 2007).
- Net Income (2008): $3,012,096 (vs. $2,230,422 in 2007).
- Net Cash Provided by Operating Activities (2008): $3,809,051.
- Total Assets (Dec 28, 2008): $15,806,476.
- Total Liabilities (Dec 28, 2008): $20,538,996 (primarily mortgage notes payable of $19,381,709).
Pro Forma Impact (Unaudited)
Pro forma financial information assumes the acquisition of the two Austin hotels plus a third property (Round Rock, TX Hampton Inn) as of December 31, 2008.
- Total Pro Forma Assets: $449,621,000.
- Total Pro Forma Liabilities: $61,298,000.
- Pro Forma Net Income (Year Ended Dec 31, 2008): $11,572,000.
- Pro Forma EPS (Basic and Diluted): $0.36.
Material Changes and Commentary
Portfolio Expansion: The acquisition adds 221 rooms to the Company's portfolio. Combined with the Round Rock acquisition, the "Vista Host Hotels Portfolio" expansion totals $47.2 million in gross purchase price.
Debt Assumption: The Company assumed existing loans totaling approximately $15.1 million for the two Austin properties. These loans are amortized monthly and mature in March 2016.
Related Parties: The sellers have no material relationship with the Company other than through the purchase contracts. The hotels will be managed by Vista Host, Inc., an affiliate whose principals are also equity holders of the partnerships.
Contract Status: As of the filing date, seven closings have occurred under the November 2008 purchase contracts, and one contract was terminated.
Risks and Contingencies
- Market Conditions: Operations are subject to economic conditions in specific geographical areas and changes in the travel and tourism industry.
- Concentration Risk: The acquired entities operate single hotels, creating concentration risk in specific locations.
- Franchise Agreements: The Company is subject to franchise agreements requiring maintenance of computer system contracts and adherence to brand standards.
- Legal Proceedings: The partnerships are involved in normal legal proceedings, none of which are expected to be material.
Investor Verification Checklist
- Debt Service Coverage: Verify the ability of the acquired properties to service the assumed debt of ~$15.1 million at interest rates near 6%.
- Occupancy and ADR Trends: Review current occupancy rates and Average Daily Rates (ADR) for the Austin market to assess revenue stability post-acquisition.
- Capital Expenditures: Confirm the condition of the properties and any immediate capital requirements for renovations or FF&E (Furniture, Fixtures, and Equipment).
- Pro Forma Accuracy: Compare the pro forma net income of $11.6 million against actual post-closing performance to validate the accretive nature of the deal.
- Liquidity Position: Assess the Company's remaining liquidity after funding the $35.7 million purchase price via equity offerings and credit lines.